Taxing the Business Activities of Not-For-Profits

The basis for the regulation concerning not-for-profit organisations (hereafter, referred to as not-for-profits) under Bulgarian law is contained in art. 3 of the Not-for-Profit Legal Persons Act (NFPLPA). According to art. 3(3) of NFPLPA, not-for-profits can go into business only if the business activity in question is connected with their registered objects, and if they would use the profit to attain goals written into their Constitutions or Memoranda of Association.

Accordingly, there is no ground of principle to stop a not-for-profit from engaging in business, so long as such a business matches the above two conditions. It would not therefore be generally permissible for a legal person that doubles as a not-for-profit to run a chain of petrol stations, for example, unless it could show a very clear and inescapable nexus between the type of trading it engages in and its objects. [So would that be satisfied by a charity interested in clean fuels?].

There is also a clear requirement that the profit of any business activity undertaken should be applied for the objects of the not-for-profit, and should not be distributed between the employees or volunteers in the organisation or to buy assets from the not-for-profit. This follows from art. 3, para. 6 of NFPLPA which stipulates that not-for-profits should not "distribute profits" and that both the business activity and the not-for-profit object should be part of the organisation's Articles.

Any unpaid provision of goods or services, from which no revenue has been received, incurs no tax. In determining the size of the profit or loss from business activities, the direct expenditure related to the activity and its share of the total of expenditure of the not-for-profit are calculated. In contradistinction to what is the case in relation to for-profit entitities, not-for-profits need not register new, separate bank accounts relating to the business activity, in the area of the Tax Authority in charge of their seat. According to Bulgarian National General Accounting Standards (which from January 1, 2005 will be replaced by international GAAP , not-for-profits must, in the course of business activities undertaken, compile a separate (supplementary) income and outgoings account, which integrates with their overall accounts under the item of 'profit/loss from business activities'. Not-for-profits, entered in a central register maintained by the Ministry of Justice, are subject to independent audits on the terms envisaged by the Accounting Act, if their overreach a minimum of one of the below conditions:

(A) previous year's balance – 500,000 Lv.
(B) The sum of the revenue from the business activity and the net value of sales revenue, added to the income from the previous year – 1,000,000 Lv.

Taxation of Not-for-Profits

According to art. 4, para. 1 of the Corporate and Income Tax Act (download in Word here), those legal persons not qualifying as 'merchants' under that statute, are taxed for their incomes including incomes from lease contracts, according to art. 1 of the Commerce Act.

Those not-for-profits registered under the NFPLPA are always liable for income tax under the Corporate and Income Tax Act, when trading. Local legal persons even when not qualifying as 'merchants' are therefore obligated as tax-liable persons under art. 6, para 1(2).

Incomes from donations and members contributions are not however treated as trading income and are not therefore liable for taxation.

Art. 51(1) of the Corporate and Income Tax Act stipulates the method and order in which taxation for corporate taxes is payable and the form of the tax return that is submitted. Tax returns are due by 31 March for the preceding 12 months, and the annual report needs to be submitted accompanied by any addenda (art. 51(2)).

It follows that not-for-profits are obliged to submit a tax return only in years in which they have been engaged in business trading.

But those not-for-profits that have been entered on the Central Register of charities kept by the Ministry of Justice are liable for tax registration as well, regardless of whether they undertake a business activity, and they need to register for tax within 14 days of being entered on the Register (of charities).

It follows that there is no reason why not-for-profits should not engage in business in their own right (provided they comply with the requirements on registration for tax, payment for tax, that they keep accounts and that the business activity is not contrary to their objects. Regardless of this, many not-for-profits register distinct private limited companies or wholly-owned public limited companies, aiming to wholly separate legally and factually the business activity from that which is core to them – the non-business activity.

Foreign nationals’ entitlement to healthcare and health insurance status

A duo of Bulgarian statutes govern the healthcare entitlement of foreign natonals - the Health Insurance Act and Public Health Act. These acts provide that foreign citizens, who have obtained the right to permanently reside in Bulgaria are entitled to the same scope of healthcare services as Bulgarians and to all services that are normally covered by the Bulgarian National Health Insurance Fund. On the other hand, possession of permanent residence obligates foreign nationals to make health insurance contributions in essentially the same way as Bulgarian citizens would.

Foreign nationals with the right to long-term residence, as well as stateless persons, refugees, persons to whom a humanitarian status has been conceded, and persons with the right of asylum in Bulgaria, are also entitled to medical services, paid for by the Bulgarian National Health Insurance Fund (NHIF). Persons in the process of applying for refugee or asylum-seeker status are, statutorily, to be health-insured by provision in the national budget.

Foreign nationals employed in Bulgaria are insured in the same manner as Bulgarians since by being employed in Bulgaria, foreign citizens obtain a work permit and residence permit. Having the entitlements goes hand in hand with the respective obligations to insure.

On the other hand, foreign citizens with only the right to short-term residence (90 days in a 6-months period), as well as persons with dual Bulgarian and foreign citizenship, and for whom there is no special provisions in an international agreement, are expected to pay the cost of the medical services provided.

The payment for medical services provided to foreign citizens who are only short-term residents is governed by the Regulations for Applying the Public Health Act, and, by the 2001 Regulation for the Medical Treatment of Foreigners on the Bulgarian Territory. As per these, foreigners entitled to short-term residence, as well as persons with dual Bulgarian and foreign citizenship, who are not paying health insurance contributions to the NHIF, shall pay for the cost of medical services they have been provided with, unless otherwise provided in an international agreement to which Bulgaria is a signatory.

The 2001 Regulation provides that medical costs for services rendered by the Centres for Blood Transfusion or by the Centres for In-patient Psychiatric Care are fixed (arranged in a schedule to the same regulation). The respective costs of all other types of medical service are not fixed and are determined by each medical institution by reference to the market. As per the 2001 Regulation, medical institutions can independently determine the means and time-limits for payment for the medical services they provide, and are obliged to exhibit in the reception area of their facility the following information:

- the prices of all medical services offered;
- the instances in which patients are required to pay for the treatment;
- the time-limits and method of payment for the services provided.

In addition, a physician who admits a foreign national to a hospital, has a duty to inform the foreign national of the above, as well as about the type of treatment to be applied, and the duration of the treatment. At the inception of treatment in the hospital, an estimate account of the cost of medical treatment has to be provided to the foreign national. Such an estimate of account becomes final at the end of the treatment after including any additional services. An invoice for the cost of the services is produced in three separate copies – one for the patient and two for the hospital.

The cost of out-patient medical services is payable in advance since the cost of these services can be determined preliminarily. Again, an invoice for the services has to be produced and presented to the patient.

But how far can foreign citizens rely on guaranteed admission, even where they are happy to pay? As per art. 92, para. 5 of the Law on Medical Institutions, state and municipal hospitals can accept for treatment paying patients but such patients cannot exceed 10% of their bed capacity. In cases when the provision of medical services are governed by a contract between the hospital and the NHIF, the hospital can determine freely the price of its services. Any income a hospital receives this way becomes part of its general profit.

Short-term residence foreign citizens and stateless persons who enter or transit Bulgaria must have purchased medical insurance. In case emergency medical treatment has been rendered, the manager of the medical institution informs the foreigner’s insurance company or the intermediary insurance company about the identity of the foreign patient, the diagnosis, the intensity of the treatment and the cost of the treatment.

Foreign states’ embassies in Bulgaria are obliged by Bulgarian law to provide for the medical treatment of foreign citizens, who do not possess medical insurance and do not have the means to pay for the cost of the treatment.

Finally, the Health Insurance Act provides that private Bulgarian health insurance companies can enter into agreements with foreign-based national health and insurance companies to assure the medical treatment of foreign citizens during their stay on the territory of Bulgaria. Thus, the foreign nationals would not pay directly for the cost of treatment, which is reimbursed by their home country’s national insurance scheme. The function of the Bulgarian health insurance company is as an intermediary between the foreign citizens’ health insurance funds and the Bulgarian medical institutions.